Blacklisting

In terms of AML, a blacklist is when the Financial Action Task Force (FATF) determines a country does not meet its standards for preventing financial crimes—such as money laundering, terrorist financing, and proliferation financing—and is also not making any significant attempts to do so.

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The FATF blacklist is officially called the “List of High-Risk Jurisdictions Subject to a Call for Action.”

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Blacklisting, Whitelisting, and Greylisting: The Differences

Greylisting vs. blacklisting comes down to a judgment as to whether a country that doesn’t meet the FATF’s anti-financial crime criteria is honestly trying to change to be compliant. If the country is—including agreeing to increased FATF monitoring and meeting certain deadlines—it’s put on the greylist. If not, it’s put on the blacklist.

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The whitelist vs. the blacklist is a more extreme contrast. The whitelist represents countries that fully comply with FATF and are earnestly working to maintain that compliance. It’s not an official list, instead consisting of all countries, not on the blacklist or greylist.

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Blacklisting is reserved for countries that have financial crime-fighting systems that function well below the FATF’s guidelines and don’t show many signs of improvement. Countries usually need first to be promoted from the blacklist to the greylist by making plans for FATF-supervised financial reforms, and then to the whitelist later if their reforms are successful and timely.

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So, summaries of the FATF’s blacklist, whitelist, and greylist are as follows:

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• Blacklist: A country isn’t complying with the FATF’s standards for preventing financial crime, and isn’t making any serious efforts towards compliance.
• Whitelist: A country is meeting FATF guidelines on fighting financial crime, and is making a continued effort to do so. An unofficial list that includes all countries not currently on the blacklist or greylist.
• Greylist: A country is under greater FATF supervision as it works to improve its ability to prevent financial crime, in accordance with the FATF’s targets and set timelines.

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But how does a country end up getting blacklisted? We’ll explain that next.

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The FATF updates blacklists and greylists three times per year. It depends on evaluations of how closely each country’s systems for fighting financial crime align with FATF benchmarks. An assessment judges both the technical and effective (i.e., practical) facets of a country’s anti-financial crime mechanisms.

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Technical

The FATF has 40 written recommendations on how countries should set up their laws, regulations, and enforcement instruments to effectively fight financial crime. The technical part of the assessment looks at how many of these goals a country has met, and how completely.

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For each recommendation, a country is rated compliant, largely compliant, partially compliant, or non-compliant.

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Effectiveness

The effectiveness part of the assessment looks at how well a country is combating financial crime from a practical standpoint. It judges this based on 11 immediate outcomes that the FATF looks for to see if countries are working towards higher-level goals of strengthening economies and financial systems against money laundering, terrorist financing, and proliferation financing.

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For each outcome, a country’s effectiveness is rated as high, substantial, moderate, or low.

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A downloadable version of the complete methodology can be found here: FATF Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems.

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The FATF is an intergovernmental organization designed to develop and set standards for fighting financial crimes—such as money laundering, terrorism financing, and proliferation financing—worldwide. So it acts as an authoritative judge of whether a country’s mechanisms and efforts to limit financial crime are working effectively.

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If the FATF puts a country on its blacklist, it has judged its systems for fighting financial crime to be severely inadequate and has concluded that no noticeable efforts are being made to improve them. Accordingly, it strongly encourages member states to conduct enhanced due diligence if dealing with that country. In some extreme situations, the FATF will urge member countries to actively take steps to protect the international financial system from financial crime happening in a blacklisted country.

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For organizations looking to do a blacklist check, the FATF’s blacklist and greylist are available on its website. These lists are updated three times a year, so some countries on the blacklist could get promoted to the greylist if they commit to working with the FATF to reform their anti-financial crime systems.

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Likewise, countries on the greylist could be demoted to the blacklist if they fail to implement their pledged reforms in a timely manner. On the other hand, they could be removed (i.e., promoted to the whitelist) if they meet their reform goals and timetables set in conjunction with the FATF.

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As of June 2023, there are three blacklisted countries:

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• North Korea
• Iran
• Myanmar

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Make FATF Blacklist Lookups Part of Your Due Diligence Regime

Being aware of which countries are blacklisted by the FATF is a critical step in the due diligence process of AML, whether onboarding or maintaining clients. That’s why it’s important to check the blacklist and greylist at least once every four months (usually February, June, and October) to see which nations the FATF recommends conducting enhanced due diligence or financial countermeasures against—or has at least put under stricter monitoring.

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Some Regtech tools have a built-in blacklist checker that will automatically screen clients for associations with countries on the FATF’s greylist or blacklist.

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